You're sitting across from SEC staff. They're proposing a settlement that includes disgorgement. Your client wants to know: does fighting this make sense?
The Supreme Court's unanimous decision in Sripetch v. United States just changed your calculus. The SEC no longer needs to prove that investors lost money to secure disgorgement of ill-gotten gains. That shift affects every enforcement negotiation from here forward.
Here's how to think through your options when disgorgement is on the table.
The Decision You're Facing
You need to decide whether to settle an SEC investigation that includes a disgorgement demand or contest the matter through litigation. This choice hinges on whether you can realistically challenge the SEC's authority to recover profits, not just whether you can prove investors weren't harmed.
Before Sripetch, you had an argument in some circuits: no investor harm, no disgorgement. That argument is now foreclosed. The question isn't whether the SEC can seek disgorgement. It's whether the amount they're seeking aligns with net profits attributable to the violation and whether those funds will go to victims.
Key Factors That Affect Your Choice
Can you document net profits versus gross revenues?
The Court in Liu v. SEC established that disgorgement extends only to net profits, not total revenues. If the SEC is demanding disgorgement of $6 million but your client's actual gain (after legitimate business expenses) was $2 million, you have a concrete dispute worth litigating.
If you can't distinguish net from gross, or if the SEC's calculation is close to your own, this factor favors settlement.
Is victim distribution feasible?
Liu also requires that disgorgement be "awarded for victims." The Sripetch Court explicitly left open whether the SEC may seek disgorgement when distributing funds to investors is infeasible, and what showing the Commission must make to prove infeasibility.
If your case involves identifiable victims who can receive restitution, the SEC's position is stronger. If the alleged victims are dispersed, untraceable, or the harm is diffuse, you may have grounds to argue the disgorgement demand exceeds equitable limits. The Court hasn't resolved this, which means it's a live issue in settlement talks.
Do you face additional penalties?
Disgorgement isn't the only remedy. If the SEC is also seeking civil penalties, injunctive relief, or officer-and-director bars, your decision tree gets more complex. Penalties carry a five-year statute of limitations under Kokesh v. SEC. Disgorgement does not.
If penalties are on the table, you're weighing the cost of disgorgement against the risk of a penalty that could dwarf it. Settlements often trade one for the other.
Would you demand a jury trial?
In SEC v. Jarkesy, the Supreme Court held that defendants have a Seventh Amendment right to a jury trial when the SEC seeks civil penalties for securities fraud. Justice Thomas's concurrence in Sripetch argues that disgorgement, now codified by Congress as a remedy under 15 U.S.C. § 78u(d)(7), should also trigger jury trial rights.
The majority didn't decide this. But if you believe a jury would view your client more favorably than a judge, and if you're prepared to argue that disgorgement is now a legal remedy requiring a jury, litigation becomes more attractive.
The Sripetch opinion subtly warned the SEC against using disgorgement "to secure penalties." If the SEC's disgorgement demand looks punitive rather than restitutionary, that's a signal to push back.
Path A: Settle When the Math Is Clear and the Risk Is High
Choose this path if:
- The SEC's disgorgement calculation is well-supported and close to your own estimate of net profits
- Identifiable victims exist and distribution is feasible
- The SEC is also threatening penalties, injunctions, or bars that would be more damaging than disgorgement alone
- Your client's conduct is difficult to defend on the merits
- You want certainty and closure
What to negotiate:
Don't accept the SEC's first number. Push for deductions that reduce gross proceeds to net profits: legitimate business expenses, costs of goods sold, payments to third parties. Liu requires this analysis, and the SEC staff knows it.
Ask whether the disgorgement will actually go to victims. If the SEC can't demonstrate a feasible distribution plan, argue for a reduced amount. This is unresolved law, which means it's negotiable.
Explore trading disgorgement for reduced penalties or no penalties at all. The SEC often views disgorgement as restorative and penalties as punitive. If you concede one, you can sometimes avoid the other.
Request a payment plan if the amount is substantial. The SEC has discretion to structure disgorgement over time, especially if immediate payment would bankrupt the defendant.
Path B: Litigate When the Demand Exceeds Equity
Choose this path if:
- The SEC is demanding disgorgement of gross revenues without accounting for legitimate expenses
- Victim distribution is plainly infeasible and the SEC hasn't explained where the money will go
- The disgorgement amount is punitive in effect, not restitutionary
- You have a strong argument that the alleged "ill-gotten gains" include funds your client would have earned through lawful activity
- You're prepared to argue for a jury trial if the disgorgement functions as a penalty
What to prepare:
Document every legitimate business expense that reduces gross proceeds to net profits. The burden is on you to show what portion of the revenue stream was lawful.
Develop a record on victim distribution. If the SEC can't identify victims or explain how funds will reach them, you have an argument that disgorgement exceeds traditional equitable limits. This is the issue the Court left open.
Preserve your Seventh Amendment argument. If the SEC's disgorgement demand looks like a penalty in disguise, cite Jarkesy and argue that you're entitled to a jury. The Court hasn't decided this, but Justice Thomas's concurrence gives you a roadmap.
Be ready for a long fight. Litigation is expensive, and the SEC has resources. If your client can't sustain a multi-year case, settlement may be the better choice even if the legal arguments favor you.
Path C: Negotiate a Partial Settlement
Choose this path if:
- You agree on some of the disgorgement amount but dispute the rest
- You want to resolve part of the case while preserving your right to litigate specific issues
- The SEC's case is strong on liability but weak on remedy
What to structure:
Propose a consent judgment on liability with a reserved dispute on the amount of disgorgement. This is unusual but not unprecedented. It gives the SEC a win on the merits while letting you fight over the math.
Offer to disgorge the amount you agree is net profit while contesting the rest. The SEC may accept this if it gets them most of what they want without trial.
Settle disgorgement but preserve your right to litigate penalties or injunctive relief. This narrows the dispute and may make trial more manageable.
Summary Matrix
| Factor | Favors Settlement | Favors Litigation |
|---|---|---|
| Net profit calculation | SEC's number matches yours | SEC demanding gross revenues |
| Victim distribution | Feasible and identifiable | Infeasible or unexplained |
| Additional penalties | High penalties threatened | Disgorgement only |
| Jury trial right | Weak or unavailable | Strong Jarkesy argument |
| Client resources | Limited litigation budget | Can sustain multi-year case |
| Merits of liability | Conduct hard to defend | Strong defense on violation |
The Sripetch decision didn't eliminate your negotiating leverage. It shifted where that leverage lies. You can't argue "no victim harm, no disgorgement" anymore. But you can still argue that the SEC's math is wrong, that victim distribution is impossible, or that the demand is punitive rather than equitable.
The Court gave the SEC clearer authority. It didn't give them a blank check.
